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The rich get richer, the Bigs get bigger, and the equities markets keep rising higher as the money pumping schemes keep heating up.
During the first two months of this year, corporations listed in the Standard & Poor’s 500 stock index have announced plans to repurchase $238 billion worth of their stock, a record for the same period in any year, according to Goldman Sachs data.
The figure tops the $234.5 billion in buybacks that we reported in “Corporate Stock Buybacks Set Record” (21 Dec 2021).
Companies will buy back $1 trillion worth of their stock this year overall, Goldman predicted, 12 percent more than last year, when the S&P added 27 percent to its value.
Almost twice as many companies this year than last are buying, Goldman said, and the purchases are spread widely across sectors of the economy.
Companies are taking advantage of recently lower share prices after the post-COVID price run-up, The Wall Street Journal reported.
Buying shares makes a company’s stock more scarce, often lifting its price and adding to C-suites’ annual bonuses. Purchases also typically boost a business’s per-share profit.
In addition, such purchases are a signal to investors that a corporation has confidence in its future, enticing shareholders to buy or hold their shares.
Buybacks “add an additional layer of support during periods of volatility,” strategist Anthony Saglimbene at Ameriprise Financial said to the WSJ.
Last December, the U.S. Securities and Exchange Commission proposed rules that would require companies to disclose more details about buybacks, including their reasons for the purchases. However, the proposal has not deterred the practice.
“Companies have created, in the last six to 12 months, something of a fortress in their balance sheets,” Jessica Bemer, a portfolio manager at Easterly Investment Partners, told the WSJ.
TREND FORECAST: As we noted in “Corporations Return to Buying Their Own Stock” (18 May 2021), the trend of the Bigs getting bigger persists here as it does elsewhere.
Stock buybacks enrich shareholders and executives and leave less of a company’s funds to invest in research, development, new equipment, new products, and in paying their workers enough to keep up with inflation.
While there is still a lot of buy-back motion on the equity front today, as the economy drags into Dragflation, the buyback trend will de-escalate, which will in turn push equity prices lower as stock supplies outstrip demand.